Why Everything Is Going to Keep Getting More Expensive

**Derek Thompson** (0:05)
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**Derek Thompson** (1:04)
In the 1990s, the Democratic consultant James Carville told a journalist, quote, I used to think if there was reincarnation, I wanted to come back as the president or the pope or a 400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody. End quote. The bond market he was referring to is where the government borrows money by issuing IOUs called bonds. When the world is calm and things are normal, investors clamor to get IOUs from the US government because they're basically seen as the safest thing around. It's practically free money. But in the 2020s, where things are rarely calm and never normal, something strange is happening. Traditional bond buyers are retreating. That means the interest rates the US government has to offer to get people to take our IOUs is rising. Rates on new 30-year US bonds, largely considered one of the safest bets in the world, were as low as 1.7% in 2021 They've since tripled to more than 5%, the highest rate in 20 years. Now, why would a bond market intimidate people, as Carville said? Well, when the US has to triple the interest rate in its bonds, it becomes more expensive for us to borrow money. That's a problem because the US is not taxing itself enough to offset our level of spending. The deficit this year is on pace to surpass $2 trillion for the first time, not counting those weird pandemic years when we bazookaed the economy with money. A surging interest rate on record high levels of debt sounds awfully expensive.
Next year, America will pay a higher share of its GDP in interest payments than any year on record going back to 1940 Think about that. That means more money not going to health care or infrastructure or education or social security. Money just going to interest on bonds to cover up the difference between spending and taxing.
I think we can fairly say that America is intimidated by rising bond yields. The Treasury has announced a range of policies intended to lower interest rates. But the long-term challenge is that everybody now is also hunting for debt. The US government and the major governments of the world are all running huge post-pandemic deficits, that's trillions of dollars in debt. Meanwhile, the hyperscalers, the big tech companies investing in AI, they're also raising hundreds of billions of dollars in debt as well. Everybody wants debt. And in a chaotic world with wars in the Middle East and Ukraine and fears about China, jittery investors are demanding higher yields. Now, why does this all matter to you?
If you think back to 2010s, much of the 21st century as we know it, has been built on the assumption of low interest rates and low inflation. Government cut taxes and increased spending because borrowing was practically free. So it seemed almost reasonable for a politician to say, we're going to get you more free stuff and cut your taxes while we're at it. Venture capital took off in Silicon Valley as investors hunted for any return higher than a few measly percentage points. But now, with higher interest rates, as far as the eye can see, I'm worried that everything is going to change. Life is going to get more and more expensive. And the way that companies think about investing will be forever shifted by this age of higher yields.
Today's return guest is Conor Sen, the author of the sub stack, the Housing Frame. We talk about this age of debt, the paradigm shift that's changing the 21st century economy, and what this all means for investors and consumers.
I'm Derek Thompson. This is Plain English.
Conor Sen, welcome back to the show.

**Conor Sen** (5:21)
Derek, thanks for having me.

**Derek Thompson** (5:22)